Jul 26, 2006. /Lesprom Network/. With the confirmed closure of five paper and tissue mills, and some corrugated sites, already experienced in the UK this year, and the indication that the energy price situation this winter could be as severe as the last, the general mood in the UK paper industry remains gloomy. Energy Prices Across all sectors, the unpredictability of energy prices continues to challenge companies. Although gas and electricity prices have fallen since the end of winter 2005-2006, the forward prices for winter 2006-2007 remain two to three times higher than current prompt prices, ultimately because of concern that demand will once again outstrip supply. Raw Materials At the same time, another significant factor affecting the cost of manufacturing is pulp prices. These have also increased over the last six months. For example, pulps purchased in US dollars are up by 5% in real terms, whilst pulps purchased in Euros have risen by some 3.5%. A fall of 1.5% in the value of sterling against the Euro has effectively increased pulp prices by 5% for UK buyers. Papermaking Sector • Newsprint demand is marginally better compared with the same period in 2005, but competition from internet-based news providers remains strong; • Demand for printing and writing grades has fallen by over 2% compared with 2005; • Reduced demand, alongside increased import competition (caused by an unfavourable exchange rate), has impacted negatively on demand for UK corrugated case material. Climate Change Agreement At the beginning of 2006, the Papermaking Sector’s Climate Change Agreement (CCA) comprised 68 mills, with 60 opted-out of Phase I of EU ETS, 6 mills being too small to be caught by EU ETS and 2 mills remaining in Phase I. Since then, five of the opted-out mills either have closed or have announced their intended closure. The mills are now well into milestone M3 (October 2005 to September 2006) and, as of May, sector performance was on target to meet the milestone and so confirm its entitlement to the Climate Change Levy (CCL) discount for another two years. Tissue Sector • General demand for soft tissue continues to rise steadily, with year-on-year growth of around 3%; • The away from home (AFH) market appears healthy, reflecting the amount of public money available to some of the main customers which include government departments and local authorities; • Consumer demand continues to rise, albeit at a slower pace than during the same period last year. The continued advertising of premium products provides general encouragement to consumers, as well as stimulating the demand for more specialist products. Recovered Paper Sector Recovered paper collection continues to increase but with more mills closing using recovered paper as a raw material UK demand continues to decrease. Exports continue to grow in line with collection increases and falling UK domestic demand. It is likely that exports of recovered paper will overtake UK domestic usage of recovered paper towards the end of 2006 on current trends. Mid-year figures are currently being finalised, and will be made available soon. Corrugated Sector Annually, the UK corrugated industry uses approximately 2.1 million tonnes of paper to produce 4 billion square meters of board. The first quarter of 2006 saw some improvement with a 2.4% increase in the weight used, and a 2.7% increase in area compared to first quarter 2005. However, up to 31 May, compared with the same period in 2005, the industry demonstrated a decrease of 0.1% by weight but an increase of 0.5% by area. To date, the sector is showing a small increase in area on the same period as last year, with a decrease in weight that can be attributed to the trend of light weighting. The CPI Corrugated Sector Body has agreed to create a single, common design (Common Footprint) for produce trays that will provide a better solution for retailers, reduce damage, and demonstrate the industry working together. A design with improved stackability over the existing FEFCO (European Federation of Corrugated Board Manufacturers) model has been suggested that is compatible with the USA’s Common Footprint. Following extensive discussions, it is understood that an agreement has now been reached within a FEFCO design group to follow the UK proposal. The Sector Body is planning a seminar for customers and retailers. Final details for this will soon be released. CPI is the voice of the paper industry in the UK, representing papermakers, tissue manufacturers, corrugated packaging producers, and recovered paper merchants.